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Most experienced and professional sports bettors are well aware of how online sportsbooks make money. Unfortunately, that knowledge is not as prevalent when it comes to a large population of U.S. recreational sports bettors. This often leads to a lot of misconceptions that cause recreational sports bettors to be at a bit more of a disadvantage than they should be.
There is very little confusion about how online casinos make money. Every online slot and casino game comes with a built-in statistical advantage that always favors the casino. Over the long haul, online casino operators can "go to the bank," knowing the statistical odds will always play out as they should.
Online sportsbooks don't have an inherent statistical advantage of any kind. To make money, they have to manipulate money, which in turn creates a financial margin that online sportsbooks can use to collect commissions. Within the retail and online sports betting communities, this commission is referred to as the "vigorish" or "the vig."
The information below is intended to serve as a tutorial about how the vig works. Hopefully, an understanding of the vig and how it works will help the aforementioned recreational sports bettors be able to better navigate the sports betting landscape.
Let's start this tutorial with the literal definition of the word vigorish. Per the dictionary.com website, the definition is: "a charge paid on a bet, as to a bookie." In financial circles, vigorish can also be used to describe the interest that is being paid to a lender.
When online sportsbook operators post a game on which bettors can wager, they want as much action on that game as possible. However, they do not want to end up with a betting position on the game. What they are looking for is balanced action on both sides of the game.
Throughout this writing, we are going to focus on the conventional straight bet with a point spread. We'll use betting information from Super Bowl LVIII. The game was played between the AFC Champion Kansas City Chiefs and the NFC Champion San Francisco 49ers. Going into the game, the 49ers were favored by 2.5 points. The underdog Chiefs won the game 25-22 in overtime.
This was a good game to select because the point spread varied very little during the two weeks leading up to the big game. When a point spread is reasonably stable, it's an indication that the action on the game in question is balanced. In other words, there is equal action coming in on both teams. In the case of Super Bowl LVIII, this was a good betting game for online bookmakers. It was good for online bookmakers because they were able to collect the vig with very little exposure to risk on one side of the game or the other. Here's a basic example of how the vig works.
Here's the point spread format for Super Bowl LVIII:
San Francisco 49ers -2.5 (-110)
Kansas City Chiefs +2.5 (-110)
When the -2.5 line was posted on the 49ers, sports bettors had 2 betting options. They could wager on the 49ers and lay the 2.5 points or they could wager on the Chiefs and take the 2.5 points. In both cases, bettors had to wager $110 for every $100 net they wanted to win. That is what the -110 money line indicates.
The vig or commission is the $10 differential between the $110 and the $100. Online bookmakers get to collect that $10 on every $210 they pay back out on winning bets. If the betting on the game ends up perfectly balanced, bookmakers get to collect their vig or commissions without risk. Again, let us demonstrate this by example. Note: the amounts wagered in this example are fictitious.
Example: Online Sportsbook A takes in $1,100,000 in wagers on the 49ers at -2.5. They also take in $1,100,000 in wagers on the Chiefs at +2.5. The book is perfectly balanced on this game. Online Sportsbook A took in a total of $2,200,000 in action on the game. However, they will have only had to pay out $2,100,000 (gross payout) to the bettors who wagered on the Chiefs. What happened to the other $100,000? That's the vig or Online Sportsbook A's commission for handling wagers on the game. This is how online sportsbooks make money on straight bets that use point spreads.
The reality for online bookmakers is it's nearly impossible to get perfectly balanced action on any game. We know that because we see point-spread movements on pretty much every game that gets posted. Online bookmakers will adjust point spreads when they are getting too much action on one side of the game in question. By adjusting the point spread in the proper direction, they are trying to entice more bettors to place wagers on the side where wagering has been slow. Here's another fictitious example to describe this:
Example: Online Sportsbook A took in $1,100,000 in bets on the 49ers at -2.5. Unfortunately, they only took in $550,000 in wagers on the Chiefs at +2.5. If no more wagers were taken, the total handle on the game would have been $1,650,000. The possible payouts would have looked like this: If the 49ers had won, the payout to winning bettors would have been $2,100,000. If the Chiefs had won, the payout to winnings bettors would have been $1,050,000.
Note: Had the 49ers won in this example, Online Sportsbook A would have had a big loss of $450,000 ($1,650,000 received and $2,100,000 paid out). Had the Chiefs won, Online Sportsbook A would have had an actual gain of $600,000 ($1,650,000 received and $1,050,000 paid out).
Clearly, the online sportsbook had risk exposure in the above example. Sure, they might have won $600,000 but it was equally likely they would have lost $450,000. Online bookmakers hate uncertainty. They would prefer to just collect their vig or commission on every posted game without any additional possible risk or benefit.
As indicated above, online bookmakers will adjust point spreads to entice bettors to come in on the weak betting side of a game. Once they do that, they will never be able to fully balance the wagering again on the game in question. The best they can hope for is to simply minimize the impact of any risk that has been created.
Online sportsbook operators do not participate in setting their initial point spreads. That function is delegated to professional oddsmakers who sell point spread information to retail and online bookmakers by subscription. Bookmakers leave this responsibility to the pros because that very first point spread on any given game can have a profound effect on a bookmaker's profit or loss.
To astute and professional sports bettors, weak point spreads create great wagering opportunities. If an oddsmaker makes a mistake on a given game, the mistake will be caught and big wagers will be made. More times than not, bets on games with weak point spreads will create huge losses for online sports betting operators.
It doesn't happen often, but when it does, here is an example of what the action might look like:
Example: The 49ers are posted as 2.5 favorite on Online Sportsbook A. There is evidence the real line should be closer to -5.0. The pros catch it and start betting heavily on the 49ers at -2.5. Eventually, Online Sportsbook A has to increase the line on the 49ers to -3.5, hoping bettors will now start betting on the Chiefs because of the extra point. The adjustment proves too small and the action continues on the 49ers until Online SportsBook A finally raises the line high enough to bring in wagers on the Chiefs. By the time that happens, Online Sportsbook A's risk on the 49ers side could be substantial. Bookmakers don't like that.
Summary: As you progress as a sports bettor, this kind of information could be valuable. The more you learn about the sports betting process, the more proficient you are likely to become as a sports bettor.
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